LA County’s Retail Market Remains Strong
Western Real Estate Business
The number of retail sales transactions worth over $1 million in Los Angeles County was down considerably in the first quarter 2016 when compared to the same period last year. These figures went from $5.8 billion in 2015 to $2.9 billion in 2016, according to CoStar. Total square footage sold in the first quarter 2015 was 25.6 million square feet versus 8.4 million square feet sold in first quarter 2016.
Despite some of the data showing a retail investment market with less velocity, some positive factors point to investors seeking a “flight to quality” in prime markets that include Los Angeles County. The spread between Class A and desirable locations has opened up with Los Angeles County maintaining a strong position as one of the most desirable markets for investing. The average cap rate for first quarter 2015 was 5.4 percent, decreasing to 5.3 percent in the first quarter 2016; while, the average cost per foot in first quarter 2015 was $234, compared to $340 in 2016.
Record pricing continues to occur here amongst all retail class type of investments. For example, the sale of a Del Taco single-tenant investment at 2060 South La Cienega Blvd. for $2.5 million representing $1,386 price per square foot and a record cap rate of 3.63%. A single-tenant Walgreens sold in Huntington Park for $11.8 million, representing a 4.22 percent cap rate, one of the lowest cap rates for a fee-simple Walgreens nationwide. Other high profile transactions occurring in first quarter 2016 include the sale of two grocery-anchored shopping centers in Santa Clarita; One Colorado development in Old Pasadena, anchored by Crate & Barrel, Gap, J Crew, Anthropologie and other high-profile tenants, which sold for over $200 million; the iconic Fred Segal along Melrose, which sold for $43 million; and the Runway Playa Vista, which sold for $475 million.
Los Angeles County remains one of the most attractive retail investment markets for investors looking to place capital. The county benefits from strong population and employment bases; strong demographics consisting of consumers with a rich cultural diversity; a solid and well diversified economy; and a healthy tourism base. The availability of capital and debt to investors remains strong and continues to be available at historically low interest rates. However, several factors and winds of change not related to the geographical location of Los Angeles County could alter the dynamics of the retail investment marketplace from a macro perspective. Those factors include the election this November; changes occurring in the CMBS debt markets and banking industries due to Dodd Frank legislation; a wave of over $350 billion in CMBS debt maturing over the next two years; and continued volatility in the existing capital markets, the global capital markets and global economies. While the overall market seems to be shifting, property owners in Los Angeles County still have a window of time to transact and take advantage of good market conditions.